French or foreign legal entities, organizations, trusts or comparable institutions, located in tax treaty countries, which, directly or indirectly, own one or more properties or real estate rights in France, are in principle liable for an annual tax equal to 3% of the market value of the properties (or rights) held on January 1st of each tax year. However, legal entities are exempt from the tax if they file a declaration (n°2746-SD) each year, informing the tax authorities of the location of their properties, their composition and their market value on January, as well as the identity of their shareholders, partners or other members holding more than 1% of the shares or other rights, and the number of shares or other rights held by each of them. The exemption is proportional to the number of shares for which the identity and address of the holders have been disclosed.
The Cour de cassation (French Supreme Court) recently ruled that the only persons who can be assimilated to the shareholders, partners or other members referred to in article 990 E, 3-d and e of the CGI (who hold, in any capacity whatsoever, more than 1% of the shares, units or other rights) are the actual economic beneficiaries on January 1st of the tax year of the legal entities concerned, and not potential beneficiaries (Cass. com. 10-5-2024 n° 21-11.230 FS-B).
As a result, a Liechtenstein foundation that has no shareholders, partners or other members and is unable to designate a current beneficiary at the time of each tax year, mentioning in its declarations for the 3% tax only a hypothetical future beneficiary of its assets, does not qualify for the 3% tax exemption.
ACTIONS TO BE TAKEN: We advise to review the situation of foreign foundations that directly or indirectly own real estates in France and, if necessary, to consider amending their articles of association or adapting their organization so that, in the event of a tax audit in France, they can designate one or more beneficial owners on January 1st of each year.
We are of course at your disposal for any assistance you may require.
Source: WTS Global – Original text
